THE EURO has slumped to a near five-month low against the dollar today as investors finally reacted to the threats of the potential coalition government in Italy to wipe clear a £219billion national debt.

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The typically robust Euro plunged to $1.17 on Wednesday, down 0.1 percent on the day, and a long way from April’s $1.24 after the dollar fought back and investors backed positive sentiment over a rise in US interest rates.

Markets were slow to react to the results of the Italian election 10 weeks ago, but now, with the prospect of the Eurosceptic anti-establishment Five Star and the right-wing Lega preparing to form a government, investor sentiment is beginning to shift.

The new government is to ask the European Central Bank to forgive £219 billion (€250 billion) of debt as a compromise to, “not to call into question the single currency”, they confirmed in a statement.

On news of tax cuts and increased government spending, an Italian banker told the Telegraph: “Austerity is over. We are going to see some rock and roll at last in this stale Eurozone. I am incredibly bullish.”

With Italy poised to untie the tight purse strings of the EU’s 2011 ’Save Italy’ austerity measures, Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo said that problems are mounting for the EU.

He said: “The Euro looks on track for further losses as market participants still appear to have more long positions on the Euro to liquidate.

“While the situation in Italy is a concern for currencies, the 5-Star Movement sees Britain struggle with its EU exit plan and is unlikely to pursue a similar agenda. The political fallout from Italy could be relatively well contained as a result.”

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THE EURO has slumped to a near five-month low against the dollar

Better to be a barbarian than a slave that sells Italy's dignity, future, businesses and even its borders.

Coalition leader Matteo Salvini

With news that Italy could still send shockwaves across the Eurozone, analysts say the market is still being complacent.

BNY Mellon said in a note to clients today that, “this sense of a market that is not particularly well prepared for a Euro decline is supported by the benign valuations still evident in the pricing of six-month and 12-month implied volatility.”

And the Euro’s decline could escalate with further clarity over the potential coalition’s demands. Responding to an article in the Financial Times headlined, “Rome opens its gates to the modern barbarians” coalition leader Matteo Salvini took to Facebook to address his two million followers by video.

Mr Salvini said: ”Better to be a barbarian than a slave that sells Italy's dignity, future, businesses and even its borders."

Elsewhere the Pound, still a long way down from the $1.43 high earlier this year, rose 0.5 percent to hit $1.3558 after it was reported that Britain could yet tell Brussels that it is prepared to stay in the European Union's customs union beyond 2021.